The idea behind a desperate loan is that they are the last lifeline, perhaps the only solution left open to those who use them. Due to either being blacklisted by creditors, suffering from a very poor credit rating, or perhaps having never applied for credit before therefore no lenders will consider them, desperate loans exist to help those in need. They also do so without the traditional methods and restrictions that are typically employed by creditors, especially when checking if an individual meets their criteria or not. This is deliberate of course, as desperate loans are designed this way to appeal to that particular market, one which normal lenders may not want to appeal to.
Where an individual’s credit rating is a factor in the decision to lend, it’s not the deciding factor. That’s the main difference between regular loans and what is considered desperation loans. The person is assessed based on their individual circumstances rather than being predetermined by numbers on a database. For example, a businessman or woman whose previous business has folded may not, on paper, seem like a sensible or safe lending option. But many business people fail multiple times before becoming successful. Lending them money to simply get back on their feet may be the difference between them achieving success or not. Credit is supposed to empower not debilitate.
Another example could be somebody who was made redundant, lost their job through no fault of their own. They then needed to claim benefits while they frantically looked for a new job. In the time they were unemployed they may have defaulted on several debts, but since then have now found new gainful employment and are doing better than ever before. It’s likely that their credit score would have taken a significant negative hit during this time, but to write that person off entirely due to this one blip in their financial history would be cruel, unethical and simply not grounded in reality.
Unfortunately, though it happens quite a lot and many people are not seen as individuals anymore. Their blip is the only thing lenders seem to notice and this can be a massive hindrance to someone’s financial recovery. This is where desperation loans can be a light in the dark when all other traditional forms of borrowing are not available to those in need.
There is no one defined desperation loan but a collection of different loans that may suit the occasion when an individual is desperate and has nowhere else to turn. These can be comprised of traditional loans with a bank or another lender, either secured or not secured, or they could be a payday loan of some variety.
The line that separates payday loan and traditional loan however seems to be blurring. This is because banks and traditional lenders are doing everything in their power to streamline their borrowing options to make it easier, fairer and more convenient to the customer. While payday loan companies have managed to shake off the stigma that was previously attached to them, and from this are now seen as legitimate financial providers. They’ve also now started offering bigger loans to those in need.
Previously a payday loan was a small amount of less than £500 which was intended to be paid back on the customer’s next pay day (or over the course of multiple paydays). Now however payday loan companies are offering loans of much bigger sums of money, as well as more bespoke products that take a customer’s individual circumstances into account and provide an affordable solution to their present circumstances.
Just because we have a bad credit rating and are denied finance from traditional avenues doesn’t mean life’s curveballs stop. We’re just as susceptible to periods of financial crisis as we were before. Perhaps even more so. If our boiler breaks in the middle of winter and we need several hundred pounds to either fix or replace it, the present amount in our bank account doesn’t somehow prevent this from happening. These situations happen to all of us regardless of our financial situation. Yet this sort of emergency is unlikely to persuade our bank to help us if our credit rating is poor.
When a crisis like this happens and all the traditional lending options are denied to us what exactly are we meant to do? This is what emergency loans are designed to help with. It’s the circumstances that matter, providers of desperation loans are happy to help people in these situations, even if they are taking a risk themselves in doing so.
While a payday loan is an ideal solution to a broken boiler this may not be enough for larger concerns. Desperation takes may shapes, it could be classified as someone frantically applying for a payday loan for the £200 they need to fix their boiler, or it could be something more long-term. The advantage of a payday loan is they are quick and easy to apply for and that the terms to attain one are more lenient than with traditional loans. In this situation it may be beneficial to take a bit more time, especially if you’re planning on borrowing a much larger sum of money.
A customer may be in debt to multiple different creditors and has either defaulted or is close to defaulting with many of them. This also counts as desperation and in this circumstance the customer may be in need of a consolidation loan, something that allows them some respite. Taking the wolves away from the door, paying off all their individual debtors and simply paying one, with a new agreement in place that’s more financially viable for the customer.
This is the sort of desperation loan where the customer’s circumstances are taken into account. They may take longer than a standard payday loan to apply for, but this is necessary for the lender to truly understand their situation, and in turn offer a solution that helps the customer in the long term. Debt can snowball and seem overwhelming, but sometimes moving the debt or consolidating it is a great way to take control of it. A more favourable interest rate can also save money over time too.
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